DETROIT, Thu May 31, 2012 – Ford Motor Co. will pursue its boldest attempt yet to tackle a nearly $50 billion risk to its business when it begins offering lump-sum pension payout offers to 98,000 white-collar retirees and former employees this summer.
The voluntary buyouts have the potential to lop off one-third of Ford’s $49 billion U.S. pension liability, a move that could shore up the company’s credit rating and stock price. It is unclear to Ford, retirees and analysts just how many people will gamble on the offer, which pension experts described as unprecedented in its magnitude and scope.
“We think if we can get at least a meaningful number of employees, this will take billions of dollars of obligations potentially off the table,” Chief Financial Officer Bob Shanks told Reuters in an interview.
A growing concern for decades as U.S. automakers lost market share to foreign-based automakers in their home country, pension costs became an albatross for the U.S. industry with the sector’s downturn five years ago.
The offers are the latest in a series of steps Ford and its larger rival General Motors Co have taken to cut these risks. Since 2000, Ford’s U.S. pension liability has increased almost 50 percent. Several companies have asked Ford how the buyout offers will be rolled out, a sign that others may follow suit if Ford is successful.
The No. 2 U.S. automaker sketched out its pension buyout offer for current retirees when it released first-quarter earnings in April, but until now had offered few details.
As early as August, between 12,000 and 15,000 U.S.-based workers will receive the first wave of offers to swap their monthly pension checks for a one-time payment.
The offer shifts the responsibility of managing those funds from Ford to the retiree. It is rare for a company to amend an existing pension plan.
“I feel schizophrenic at times,” said Rick Popp, Ford’s director of employee benefits. “There are times when I think it will be very popular. Other times, I think nobody will take it. To us, it’s an opportunity.”
At the end of 2011, the gross pension liabilities of both GM and Ford rose to record levels, Citi analyst Itay Michaeli said. Ford finished 2011 with a global pension obligation of $74 billion, nearly double the company’s $40 billion stock market value.